I want to quickly cover MEV, or Miner Extractable Value, given it’s still a topic of increased relevance, and yet still opaque. MEV refers to the potential value that miners can extract from the transactions included in a block they mine. On the Ethereum blockchain, MEV is primarily generated from arbitrage opportunities, transaction reordering, and other forms of value extraction.
Arbitrage opportunities occur when there is a price difference between two or more decentralized exchanges (DEXs) for the same asset. Traders can take advantage of these price differences by buying the asset on the DEX where it is cheaper and selling it on the DEX where it is more expensive. Miners can also take advantage of these opportunities by front-running transactions, meaning they insert their own transaction into the block they are mining before the trader’s transaction, allowing them to execute the trade first and capture the profit.
Transaction reordering is another way for miners to extract value from the Ethereum network. By reordering transactions in a block, miners can potentially increase their revenue by placing their own transactions before others, allowing them to capture more transaction fees or take advantage of arbitrage opportunities before other traders.
MEV can also be generated through other forms of value extraction, such as flash loans, where a trader borrows a large amount of funds from a lending pool, executes a trade, and repays the loan all within a single transaction. Miners can capture a portion of the flash loan’s interest as a fee for including the transaction in the block they mine.
To extract MEV, miners used specialized software called “MEV-geth,” pre-merge, which was a modified version of the Ethereum client software that allowed miners to identify and extract MEV from transactions in the block they are mining. Now in a PoS system MEV-boost is the implementation of proposer-builder separation for Ethereum.
Overall, MEV is a complex and rapidly evolving field in the Ethereum ecosystem (and more importantly PoS blockchains), and new forms of MEV extraction and countermeasures are constantly being developed by miners, traders, and researchers. Lastly, if you’re interested in more, check out Flashbots’ docs: https://docs.flashbots.net/
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